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Cramer’s Groupon IPO Strategy

Thursday, 27 Oct 2011 | 6:34 PM ET

Groupon is the most hyped and artificial IPO since the dot com era began, Cramer said Thursday. While you can make some money off the initial surge, it's not a name he wants you to own.

A Pre-Emptive Sell Block: Groupon's IPO
Cramer says Groupon is offering a tiny amount of stock at a low price in order to get an opening day pop. After the offering, the mutual funds come in and help create an insane first-day rally. The company is selling the smallest sliver of the company to the market, yet. So Cramer recommends that if you want to get in, you should get out quickly.

“The Groupon IPO is very much a product of the Wall Street promotion machine,” he said. “I think you'll get an initial pop, but after that you don't want to be left holding the bag.”

The “Mad Money” host said more than just that promotion will factor into the first day spike. Groupon, which prices next week, is yet another example of these “sliver deals”—where a company offers a tiny amount of stock to “deliberately make people salivate.”

We’ve seen it with LinkedIn , HomeAway and Zillow , which all had big gains on the first day. LinkedIn and HomeAway are now down 10 percent from where they started trading in the aftermarket. Zillow is down 20 percent.

“Groupon is like these other deals, but on steroids,” Cramer said. The company is only selling 34.5 million shares, or 5 percent of the company.

Cramer also warned homegamers to be skeptical of Groupon’s business pitch. In fact, he wonders if the company has already peaked, since it recently said it was slashing valuation to a range from $10 to $11.4 billion. Just a few months ago, people were talking about Groupon as a $30 billion company.

Plus, Groupon hasn’t been able to turn a profit and there are concerns about competition.

“Throw in the fact that Groupon will have an incredibly elevated valuation when it comes public,” he said, “and it only takes one stumble for a high multiple stock to get torn to pieces."

The bottom line—“I think you’d be a fool not to try to get some shares in this deal and take advantage of it, so long as you sell into the spike on the first day,” he said. “And under no circumstances should you buy any Groupon in the aftermarket.”

Call Cramer: 1-800-743-CNBC

Questions for Cramer? madmoney@cnbc.com

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